Crimea Referendum Looms as Kerry Fails to Sway Russia

Ukraine’s Crimea region moved toward a referendum tomorrow on joining Russia after talks between the top U.S. and Russian diplomats failed to defuse the standoff over the breakaway Black Sea peninsula.

As the vote neared, clashes erupted in Kharkiv and Russian troops massed for exercises on the border, stirring concerns of a move to annex eastern Ukraine. U.S. Secretary of State John Kerry, who met for six hours yesterday with Russian Foreign Minister Sergei Lavrov without a breakthrough, warned that Russia would face consequences if it failed to change course.

Russian President Vladimir Putin “is not prepared to make any decision regarding Ukraine until after the referendum,” Kerry told a reporters after the meeting in London. Russia “will respect the will of the Crimean peoples,” Lavrov said at a separate news conference, adding that there’s “no common vision” on resolving the crisis.

The biggest dispute between Russia and the West since the fall of the Iron Curtain is shaking markets and threatening to upset more than two decades of economic and diplomatic integration between the former Cold War enemies. The U.S. and the European Union are threatening sanctions against Russia if it doesn’t back down from annexing Crimea.

“We have obviously not gotten to a situation where Russia has chosen to de-escalate” and that is “regrettable,” White House spokesman Jay Carney told reporters in Washington. “We are pretty late in the game here with regards to the situation in Crimea,” he said, adding that the U.S. stands “ready to respond” should the referendum “go forward.”

High Turnout

Eugene Rumer, director of the Russia and Eurasia program at the Carnegie Endowment for International Peace, a Washington policy group, said in a telephone interview that Putin is driven by deep geopolitical goals and isn’t likely to fear the consequences of sanctions by Western nations.

After watching the North Atlantic Treaty Organization expand and the U.S. build ties with former Soviet Union countries, Russians feel they “have every reason to push back and expand their ‘sphere of privileged interests,’” Rumer said. Putin, “when he returned to the Kremlin after four years of Prime Minister, he embraced this idea,” Rumer said.

“It’s not about keeping Ukraine in Russia’s orbit, it’s about keeping Ukraine from slipping away,” he said. “My guess is he’s betting on not suffering a whole lot in retribution from the U.S. and Europe.”

Markets Slide

Crimean Premier Sergei Aksenov told reporters in the region’s capital, Simferopol, that the peninsula may formally become part of Russia next week, though full integration may take a year. Turnout in the referendum is expected to be more than 80 percent, he said.

Russian stocks posted the biggest weekly drop since May 2012, with the Micex Index (INDEXCF) sliding 7.6 percent to 1,237.43, the lowest level since May 2012. Russia’s 10-year bond fell for a sixth day, driving up the yield by 32 basis points to 9.68 percent, the highest level since 2009. The ruble weakened 0.3 percent to 43.0934 against Bank Rossii’s target basket of dollars and euros yesterday in Moscow. Gold climbed to the highest in sixth months.

The Standard & Poor’s 500 Index of U.S. stocks fell 2 percent this week to 1,841.13, erasing its gains for the year. The UX index of Ukrainian stocks was down 7.1 percent for the week. Even so, Ukrainian Eurobonds and the hryvnia rebounded after Lavrov said that Russia has no invasion plans.

Kharkiv Clashes

In the eastern Ukrainian city of Kharkiv, two people were killed and a police officer wounded in a shootout downtown, Interfax reported, citing the local prosecutor. Violence broke out there yesterday between supporters of the new Ukrainian government and pro-Russian demonstrators, Itar-Tass reported.

Putin’s government contends ethnic Russians in Crimea are at risk after the ouster of Ukraine’s President Viktor Yanukovych, an assertion that Ukraine’s new leaders deny. The Kremlin supports Crimea’s recently appointed administration, which organized tomorrow’s referendum.

The United Nations Security Council will meet today in New York to vote on a draft resolution proposed by the U.S. that stresses the need for political dialogue in Ukraine. The vote’s purpose in the face of a likely Russian veto isn’t adoption but rather to send a message to Putin that he’s increasingly isolated, said a UN diplomat who asked not to be identified, citing policy.

The text stops short of explicitly blaming or condemning Russia for violating Ukraine’s sovereignty with its moves in Crimea, the diplomat said.

Deployment Freeze

Kerry said yesterday there’s a better way for Putin to pursue Russia’s “legitimate interests” in Ukraine, the second most populous former Soviet republic. He said the U.S. is concerned about the posture of Russian troops in Crimea, home to Russia’s Black Sea fleet, and near the Ukrainian border. A freeze in deployments would allow time for further diplomacy, he said, calling for “actions not words.”

Lavrov said that “the Russian Federation has no plans to invade,” while expressing outrage over March 13 clashes in the eastern Ukrainian city of Donetsk in which one person was killed and 17 injured, according to the regional government.

“Militants came to Donetsk from other regions and started fighting with demonstrators,” Lavrov said.

Earlier yesterday, the Foreign Ministry in Moscow said in a statement that “Russia is aware of its responsibility for the lives of its countrymen and citizens and reserves the right to defend people.”

‘Escalate Tensions’

Ukraine’s Foreign Ministry responded by saying the Russian statement was “striking in its cynicism and irresponsibility” and that Russian individuals and groups had “arrived in Ukraine to escalate tensions.”

Russia may be provoking some of the clashes in Ukraine to justify extending a military incursion, said Oleksiy Haran, a professor of comparative politics at the Kyiv-Mohyla Academy.

“Russia is destabilizing the situation in eastern Ukraine on purpose and is ready to use anything it can,” Haran said by phone. “Provocations are resulting in people’s deaths, and then Russia uses it to begin wide-scale aggression against eastern Ukraine’s regions.”

U.S. Vice President Joe Biden will travel to NATO members Poland and Lithuania on March 17, the day after the Crimea vote, for talks on Ukraine, according to a White House statement. The Pentagon said this week it would send 12 F-16 aircraft to Poland as a sign of U.S. commitment to defend allies in the region, and the U.S. sent six fighter jets to Lithuania last week.

EU foreign ministers, who meet the day after the vote in Crimea, are poised to impose asset freezes and visa bans on people and “entities” involved in Russia’s seizure of the peninsula, leaving the next stage of sanctions to be weighed at a summit at the end of next week, an EU official said.

“All the detailed preparation that needs to be done is being done,” U.K. Prime Minister David Cameron’s spokesman, Jean-Christophe Gray, told reporters in London.